Under the Goods and Services Tax (GST) regime beginning January 2022, coupon discounts offered by food delivery platforms including Zomato and Swiggy are set to face the taxman’s scrutiny.
The issue is around discounts being offered by the delivery apps for customers using a particular credit card, debit card, or digital wallet for making payments.
As per the people aware of the development, the arrangements between restaurants and delivery apps that result in discounts could also come under tax scrutiny.
W.e.f. January 1st 2022, both Swiggy and Zomato are set to be treated on par with restaurants, implying that they too would have to cough up a 5% tax on the total cost of food.
However, unlike directly ordering or buying food from a restaurant, complications are expected to arise as e-commerce operators (ECO) tend to offer discounts at various points to reduce the prices for consumers, including those offered when the payment is done through a particular wallet, credit card or debit card.
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Insiders associated with the developments say that this arrangement of Swiggy and Zomato with banks in most cases could be considered "barter" for the promotion of banking services or credit cards.
Hence, the tax department is scrutinizing whether these indeed are "barter" agreements between Swiggy and Zomato, as nothing is free under GST, not even barter.
According to what tax experts pointed out, similar discounts are also offered if customers order above a particular threshold amount or from a particular restaurant.
So, even here, the tax department is set to scrutinize whether any particular money is being paid by restaurants for such promotion. And if not, then it will be further scrutinized whether there is the involvement of barter.
Even in situations where discounts are not offered, tax experts say that there is also a complication around the amount on which GST must be paid.
In most of the cases, small restaurants or dhabas do not tend to pay GST. So, in case customers were to order food from such places, then the onus of GST would fall on the delivery apps.
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Currently, restaurants are charged 5% GST, but they do not get an input tax credit on the amount. Simply put,? an input tax credit is basically GST paid on input services or raw materials that can be set off against a certain kind of future tax liability. This means that the GST paid becomes pure cost. Similar would also be the case for Swiggy and Zomato if they have to cough up the? 5% GST.
With the tax scrutiny exercise under the Goods and Services Tax (GST) regime set to begin in January 2022, it remains to be soon exactly how the exercise unfolds, and what implications it would likely have on Swiggy and Zomato.
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